CFA Survey Finds Stubborn Pockets of Robo-Resistance

A large poll of chartered financial analysts (CFAs) conducted internally by the CFA Institute found widely varying opinions of the state of the
robo-advice industry—with a sizable plurality of charter holders suggesting
they have little interest in the new wave of fin-tech.

Just 19% of those polled said they were “very familiar” with
the so called robo-advice tools and services currently out there on the market,
and “a not insignificant 16% of CFA members are not at all familiar with such
tools.”

The findings come from a new report published by the CFA
Institute, which it put together at the request of European banking and market authorities
interested in learning about the state of robo-advice globally. Explaining the
results of its global member survey, the CFA Institute says the North America
region clearly has the highest level of familiarity when it comes to
integrating data and automation technology into portfolio management and
financial planning. Interestingly, developed European markets actually lag behind some
emerging markets in terms of charter holders’ awareness of and openness towards robo-advisers.

Looking across all its responses, CFA Institute finds asset
management (54%) is considered to be the sector that will be most
affected by automated financial advice tools, followed by banking (16%),
securities (12%), and insurance (8%). According to the survey report, many of
the open-ended responses put forward under “other” noted financial advisers and
wealth management as being the specific group that will be most affected.

“These findings are intuitive given the increasing
proliferation of robo-advisers,” CFA institute suggests.

Taking a step beyond simple awareness, CFA Institute also
asked charter holders how individual investor clients may be impacted by the
increased use of technology. Most respondents felt that “most financial advice
tools offer relatively unsophisticated advice based typically on offering a
diversified portfolio.”

“It is likely because of this stylized fact that 70% of
respondents think mass affluent investors will be positively affected by
automated financial advice tools, followed by other investors (67%) and high-net-worth individuals (41%),” the report explains. “The higher the wealth, the
more likely that respondents do not think investors will be affected by
automated financial advice tools, which are not yet capable of offering
complex, tailored advice.”

NEXT: Other
anticipated impacts among CFAs

According to the CFA Institute poll, the rise of automated
financial advice tools may impact consumers through several mechanisms.

“Some of these impacts may be positive, others negative. Our
survey suggests that cost, access to advice, and product choice are all viewed
as more likely to have a positive impact on consumers,” the report says. “Respondents
are most divided on opinions of the impact of financial advice tools on market
fraud and quality of service, with quality of service being the most negatively
impacted.”

Related to this, many CFAs apparently lack trust in the
technology underpinning robo-advisers. Many suggested the increase in automated
financial advice “may lead to new risks or the re-evaluation of existing risks.
Forty-six percent of respondents note that flaws in automated financial advice
algorithms could be the biggest risk introduced from automated financial advice
tools, followed by inappropriate selling (30%) and privacy and data protection
concerns (12%).”

However, even those advisers who are otherwise skeptical of
the benefits of robo-advice highlight the potential cost-effectiveness of the approach.
In the North America region, for example, 90% of CFA holders polled said
greater use of robo-advice would have positive benefits from a cost perspective
for individual clients and consumers in general.

Other specific concerns called out by CFA holders were that “automated
financial advice tools are not likely to be able to account for behavioral
biases in clients or to account for personal circumstances in a satisfactory
fashion,” and the “increased risk of herding as more and more investors are
directed towards passive strategies.”